Under Armour CEO Uses Innovation To Beat Rivals

Satchel Paige, the famed ex-major league pitcher, once said: "Don't look back. Something might be gaining on you." Athletic apparel and footwear leader Nike may be hearing the footsteps of a smaller but rising competitor, Under Armour (UA), which is garnering market share.

When a smaller player battles the dominant force in the industry, introducing innovative products is often key to success. Baltimore-based Under Armour's inventive products have been boosting revenue and positioning it to compete against the behemoth of the industry.

Jonathan Grassi, a senior retail analyst at Cleveland-based Longbow Research, credited Under Armour's growth to four factors: a spike in apparel sales, growth in footwear sales, e-commerce and developing Factory House, a chain of 89 company-owned stores of which 84 are factory outlets. Factory House sells its products directly to consumers, which enables it to control its inventory.

Under Armour CEO Kevin Plank, second from left, unveils the new Spine sneaker at a New York event with Olympic gold medal skier Lindsey Vonn, NFL... View Enlarged Image

"They've been pushing the envelope of athletic apparel to drive higher price points," Grassi said. He says their products are catching on with consumers, especially teenagers and college students.

CEO Lauds Products

An example of Under Armour's marketing hoopla was a June 20 event in New York City where founder/CEO Kevin Plank, surrounded by its roster of sports stars including Super Bowl winner Tom Brady, Olympic gold medalist Lindsey Vonn and NBA player Kemba Walker, introduced Spine, a new sneaker. It weighs 9.7 ounces. The sneaker will start selling as a running shoe and then branch out into basketball, football and baseball.

Plank says new products like this are driving the company's success. "We have a pipeline of innovation coming. Wait until you see what we have coming out at the end of the year and in spring 2013," he told IBD at the event.

Plank focuses on creating cutting-edge products, rather than responding to Nike's (NKE) slate. "We don't get caught up in keeping up with the Joneses,'" he said.

Plank says Under Armour cultivates designers that develop breakthrough products. "How do we remain humble and smart enough to seek them out and listen to their ideas?" Plank asked. He says the process involves designers bringing the idea to the company, after which Under Armour supplies "the leverage, the distribution and material knowledge."

Grassi said the company's best-selling products include its trademarked Charged Cotton T-shirts that are made with a synthetic material that dries five times faster than regular T-shirts and appeal to runners and other athletes. Another product, Under Armour's Cold Black T-shirts, are infused with a chemical that reflects sunlight and cuts the wearing temperature by seven degrees.

Satchel Paige, the famed ex-major league pitcher, once said: "Don't look back. Something might be gaining on you." Athletic apparel and footwear leader Nike may be hearing the footsteps of a smaller but rising competitor, Under Armour (UA), which is garnering market share.

When a smaller player battles the dominant force in the industry, introducing innovative products is often key to success. Baltimore-based Under Armour's inventive products have been boosting revenue and positioning it to compete against the behemoth of the industry.

Jonathan Grassi, a senior retail analyst at Cleveland-based Longbow Research, credited Under Armour's growth to four factors: a spike in apparel sales, growth in footwear sales, e-commerce and developing Factory House, a chain of 89 company-owned stores of which 84 are factory outlets. Factory House sells its products directly to consumers, which enables it to control its inventory.

Under Armour CEO Kevin Plank, second from left, unveils the new Spine sneaker at a New York event with Olympic gold medal skier Lindsey Vonn, NFL... View Enlarged Image

"They've been pushing the envelope of athletic apparel to drive higher price points," Grassi said. He says their products are catching on with consumers, especially teenagers and college students.

CEO Lauds Products

An example of Under Armour's marketing hoopla was a June 20 event in New York City where founder/CEO Kevin Plank, surrounded by its roster of sports stars including Super Bowl winner Tom Brady, Olympic gold medalist Lindsey Vonn and NBA player Kemba Walker, introduced Spine, a new sneaker. It weighs 9.7 ounces. The sneaker will start selling as a running shoe and then branch out into basketball, football and baseball.

Plank says new products like this are driving the company's success. "We have a pipeline of innovation coming. Wait until you see what we have coming out at the end of the year and in spring 2013," he told IBD at the event.

Plank focuses on creating cutting-edge products, rather than responding to Nike's (NKE) slate. "We don't get caught up in keeping up with the Joneses,'" he said.

Plank says Under Armour cultivates designers that develop breakthrough products. "How do we remain humble and smart enough to seek them out and listen to their ideas?" Plank asked. He says the process involves designers bringing the idea to the company, after which Under Armour supplies "the leverage, the distribution and material knowledge."

Grassi said the company's best-selling products include its trademarked Charged Cotton T-shirts that are made with a synthetic material that dries five times faster than regular T-shirts and appeal to runners and other athletes. Another product, Under Armour's Cold Black T-shirts, are infused with a chemical that reflects sunlight and cuts the wearing temperature by seven degrees.

In footwear sales, Under Armour faces stiffer going because many runners are loyal to the Nike, Adidas or Reebok (owned by Adidas) brands. To develop its sneakers line, Under Armour poached Gene McCarthy, currently its senior vice president of Footwear, from Nike in 2009.

To compete, Under Armour introduced the running shoe Split II in 2011, which has been a solid seller, and RC Charge, a lightweight, high-end running shoe. But it has a ways to catch up to Nike, which holds 42% of the $14 billion U.S. athletic footwear market vs. Under Armour's 1%.

Sales of its women's gear have been on the upswing. The Armour Bra and Perfect Pant, which Grassi describes as Lululemon-style bottoms, have seen sales accelerate.

Endorsement Wars

Under Armour has been stealing some of Nike's endorsement thunder by signing quarterback Brady and Cam Newton, the Carolina Panthers quarterback who was voted the NFL's rookie offensive player of the year.

"Signing Newton — who's become the face of the NFL — is a big boost, and Brady is a great character guy with Hollywood appeal," Grassi said.

Sometimes, the smaller player can be the more nimble competitor, says Bill Guertin, author of "The 800-Pound Gorilla of Sales." "Nike is larger and can have more difficulty adapting when a new trend comes up. Under Armour can capitalize on it more efficiently," he said.

But Guertin says Nike is keeping an eye on Under Armour and is taking steps to shield its market share. One thing Nike is doing, he says, is to steal customers like Under Armour's from Adidas, Reebok and Russell Athletic.

Grassi says Under Armour's weakness is that it's very dependent on two retail chains for sales: Dick's Sporting Goods (DKS) and Sports Authority. Together, the chains account for 26% of its total revenue.

But Under Armour is bolstering its position, according to Grassi. He says the company's boosting its e-commerce presence, diversifying its selling channels and building up Factory House to lessen its dependence on the two retail chains.

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